Park Avneue Report - December 1996

Park Avenue, long considered the premier address in New York, continues to hold its reputation as one of the finest corporate addresses in the world. The Park Avenue office market corridor is significant, though, not only because of its preeminent name but also because of its size, with the segment of the avenue in Midtown between 32nd and 62nd streets equaling nearly 19% of the entire Midtown market. During the early 1990’s, Park Avenue was not immune from the recession and its effects on the New York real estate market. Availability rates skyrocketed and rents dropped, as corporations consolidated their operations and/or relocated to less expensive space. In recent years however, the Park Avenue office market has recovered, with vacancy rates dropping into the single digits and concessions such as rent abatement becoming largely a thing of the past.

The focus of this report is to examine trends and activity along Park Avenue in buildings of 50,000 square feet or more. We chose this threshold because the smaller buildings, of which there are but a few, tend not to reflect the same level of quality as the vast majority of the buildings along the avenue and therefore don’t accurately reflect the health of the Park Avenue office market.

The Park Avenue portion of the Plaza District boasts some of the most recognizable addresses in corporate America as well as an average asking rent of more than $45 per square foot. With an availability rate of just 7.1% along Park Avenue, versus 10.6% for the Plaza District in its entirety and 12.4% for all of Midtown, it appears that companies seeking the prestige of a recognizable address remain willing to pay a premium for such space and continue to make Park Avenue a preferred location. For example, 320 Park Avenue, once the ITT Building but now owned by Mutual of America Life Insurance Company, is almost entirely leased following its sale and complete renovation. The large block of space vacated at Park Avenue Plaza as a result of First Boston’s move to Midtown South has been virtually refilled after only a short time on the market.

The component of the Park Avenue market within the Grand Central District is the largest of the three submarkets, with more than 20,000,000 square feet of office space. Indeed, it is larger than the other two parts of Park Avenue combined and more than double the size of the Plaza District portion alone. Asking rents along this section of Park Avenue average a little more than $33 per square foot. Here, just as in the other two submarkets, the Grand Central District section has an availability rate (10.0%) below that of the district as a whole (12.8%). Also, as in the other parts of Park Avenue, large blocks of space are difficult to find, with only five buildings being able to accommodate a user needing 100,000 square feet of contiguous space and only one that can accommodate a 300,000 square foot user (3 Park Avenue). Nearly all of the space available at 3 Park Avenue is sublet space put on the market by Blue Cross/Blue Shield. A 161,150 square foot block of space at 277 Park Avenue has also recently been offered for sublet at $45 per square foot. The space was formerly the New York headquarters of SG Warburg before the Company was acquired by Swiss Bank.

Not surprisingly given corporate economizing, Park Avenue South, with its "Park Avenue" address and an average asking rent of slightly over $21 per square foot, is presently one of the most popular parts of all Manhattan. In fact, many of the buildings along Park Avenue South have no space remaining available and only one has more than 35,000 square feet on the market at the moment. This translates to a remarkably low availability rate of just 5.5%, the lowest of the three Park Avenue submarkets and less than half the 11.2% availability rate of the entire Midtown South submarket. Perhaps, too, part of its popularity in recent years has been due to the more intimate nature of its smaller buildings, as many of the companies which have moved to Park Avenue South are in more creative fields, such as advertising.

A number of prominent companies occupying large blocks of space have recently elected to renew and/or expand their leases and remain on Park Avenue, while several others have relocated or consolidated to the avenue from other locations. Altogether, there were ten major lease transactions on Park Avenue involving 100,000 or more square feet. The largest transaction overall occurred when Colgate Palmolive agreed to renew its lease for almost 520,000 square feet at 300 Park Avenue. Interestingly in terms of total square footage, most of the activity occurred within the Grand Central District, with almost 1.25 million square feet involved in five transactions versus just over 807,000 in five leases in the Plaza District. However, the difference in activity within the two submarkets is reversed regarding new leases. The National Football League and the Meredith Corporation each signed leases in the Grand Central District portion, totaling more than 310,000 square feet. While, in the Plaza District, Swiss RE Financial Services Corp. leased approximately 151,000 square feet earlier this month and ING Bank is expected to lease 200,000 square feet, both at Park Avenue Plaza. Morgan Guaranty Trust is also expected to take almost 232,000 square feet at 345 Park Avenue.

Several other financial services companies have moved to, or have expanded their presence on the avenue of late. Among the more recent examples are Warburg Pincus, now occupying over 149,000 square feet at 237 Park Avenue and, as mentioned earlier, Mutual of America, which purchased the former ITT building, 320 Park Avenue, and now occupies a large portion of the building. This underscores the trend whereby financial services companies have relocated to Park Avenue, often moving from downtown. Conversely, the presence of industrial companies, like Bristol Myers Squibb, continues to decline.

Two buildings were sold on Park Avenue since January 1995, 410 Park Avenue, which sold for nearly $147/sf, and 250 Park Avenue South, which sold for just under $100/sf. 410 Park Avenue is a 21 story building built in 1958 and is located near the center of the Plaza District at the corner of 55th Street. It was 100% occupied at the time of sale and has a number of prominent tenants, including Chase Manhattan Bank which occupies seven floors. However, another of its well-known tenants, the National Football League, is leaving and there are now 112,428 square feet available, which is 48.5% of the total square footage in the building. 250 Park Avenue South, on the other hand, is a much smaller and older building. Built in 1911, this building contains only 122,000 total square feet. The availability rate is also much lower (16.4%) with 20,000 square feet currently available.

Park Avenue continues to maintain its position as the preeminent address in corporate America, with high rents and an availability rate of only 8.4%. Rent abatement and other landlord concessions have been significantly reduced.

The Park Avenue portion of the Grand Central and Plaza Districts were very active in major lease transactions of 100,000 square feet or more. There were 5 transactions in each district, together for more than 2,000,000 square feet.

Large blocks of space, particularly contiguous space, are at a premium, with just ten buildings on Park Avenue able to accommodate users requiring 100,000 square feet or more and only five of these can do so with contiguous space.

While availability rates along Park Avenue have declined and will likely continue to drop, we do not expect any near-term spike in rents due to overall supply conditions in Manhattan.

Park Avenue South has become one of the most popular locations in New York, offering the prestige of a "Park Avenue" address but at attractive rents. Companies that moved there during the 1980’s to escape the high Midtown rents like their new neighborhood and are not anxious to leave.